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ESG investment still founded on ‘the growth delusion’

Charitable investors look beyond ESG, exploring how investment strategies can address planetary boundaries

(Tuesday 23 March, London) A group of charitable investors convened by ShareAction have claimed that “ESG approaches are ultimately incrementalist… they are a continuation of unsustainable investment practices.”

The investors – senior staff and board members at ten major charities – spent six months exploring ‘growth narratives’ and applying these critiques of growth to responsible investment.

Books such as Jason Hickel’s How Degrowth will Save the World and Kate Raworth’s Doughnut Economics have been a constant feature on bestseller lists in recent years. And their arguments – that, beyond a certain point, growth does not improve human welfare, but continues to drive environmental destruction and social inequality - are increasingly being heard in the mainstream.

Most recently, the Dasgupta Review on the Economics of Biodiversity, published by the UK Treasury, argues that no amount of technological progress can make economic growth as conventionally measured an indefinite possibility. Ours is inevitably a finite economy, as is the biosphere of which we are part.”

Yet few have directly addressed the role of investors in moving beyond growth. “Alternative system designs have drastic implications for the role of private capital, despite this being a relatively under-examined area to date”, said Lily Tomson, Head of Networks at ShareAction and report co-author.

“This initiative makes abundantly clear that the current growth paradigm is unsustainable not only for the planet and its peoples, but also for investors. Investors have a particular responsibility to develop new approaches because the current paradigm is so baked into the models, expectations and incentives along today's investment chain. Now is the time to build new approaches as we seek to finance a green and just recovery from COVID19", said Nick Robins, Professor in Practice - Sustainable Finance, Grantham Research Institute, London School of Economics and Political Science.

Recent years have seen the rapid growth of ESG investment, which seeks to integrate environmental, social and governance risks to investments. But the working group found that the idea of infinite growth was still ‘baked in’ to these practices.

For example, ESG principles suggest investment in electric vehicles rather than those reliant on fossil fuel. “But the replacement of the current total vehicle fleet, let alone its growth, is fundamentally unsustainable due to the overall material footprint”, said Dominic Burke, Investment Director at Lankelly Chase Foundation and report co-author.

“Much of what we call investment involves the extraction of rents from finite resources and/or human exploitation. Responsible investors may aspire to mitigate that, but to a large extent their actions remain disconnected from ecological thresholds - perhaps with the exception of carbon - and social foundations. A bit more disclosure and engagement simply isn’t enough”, he said.

Truly sustainable investment, the group say, would mean anchoring asset prices in externally defined ecological thresholds, such as the Stockholm Institute’s nine Planetary Boundaries, and foundational social needs, as envisaged by Kate Raworth’s ‘safe and just operating space for humanity’.

The group acknowledged that public and regulatory bodies were best placed to initiative change on the scale required. But Dominic Burke said, “We wanted to break cover and speak out on this topic, as well as help identify and pioneer practice which moves beyond it. Given our public benefit status as mission-driven investors, capitalised charities may be uniquely placed to act as first-movers or catalysts for this new model of investing.”

The group identifies a series of steps investors should take, including ensuring that externally defined social and ecological thresholds are at the heart of corporate and investor sustainability efforts and reporting.

They argue that thresholds should also be acknowledged within fiduciaries' investment powers, while corporate purpose statements should include “sunset provisions” which de-naturalise expectations of limitless growth. They also call into question why responsible investors support business models premised on excessive and unequal consumption, fuelled by advertising and planned obsolescence.

Working group members are meeting shortly with their asset managers and service providers to explore the project further.

Notes to editors

For all enquiries and interview requests, please contact:

Conor Quinn, Media Communications Manager, ShareAction +44 (0)7444 696 214

Read the report: Growth Narratives: An inquiry and provocation by charitable investors

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